Cautions To Employers Considering A

Multiemployer Plan
Bruce K. Leigh

Are you a small employer that has been faced with the possibility of participating
in a multiemployer plan for your union employees? If so, before you sign up, you
should carefully consider the pros and cons (especially cons!) of such a plan.

WHAT ARE MULTIEMPLOYER PLANS?

Multiemployer plans are union plans sponsored by two or more unaffiliated
employers based on a common collective bargaining agreement. Most
multiemployer collective bargaining agreements provide a cluster of employee
benefit plans: pension, health, vacation, holiday, apprenticeship and training.
The pension plans sometimes include one or more types of defined contribution
plans but usually are centered on a traditional defined benefit pension plan.

WHY (OR WHY NOT) A MULTIEMPLOYER PLAN?

Employers may be attracted to multiemployer plans by the prospect of obtaining
lucrative union work or by the availability of a pool of trained employees who can
be employed or laid off as the employer's workload varies. Employers also may be
attracted by the prospect of no longer bearing the burden of managing employee
benefits for their employees. However, these attractive features can come with
significant disadvantages, especially for the small employer. Many employers
subscribe to a multiemployer collective bargaining agreement without any
awareness of the burdens and disadvantages associated with the multiemployer
benefit plans that come with the agreement.
The burden is that the employer will still have to fund the employee benefit plans
in which its employees participate by making regular contributions. The main
disadvantage is that the smaller employer surrenders control of the employee
benefits provided to its employees and the costs of funding those benefits to the
union and the largest employers who control the collective bargaining agreement
and the employee benefit plans. Control of such matters plan design, benefits,
and funding lies with the joint labor-management board of trustees, which is
usually dominated by the union and the largest sponsoring employers.
The employer is obligated to make regular contributions to the plans, and the
board of trustees is required to vigorously enforce that obligation. Payment of
those contributions may appear easy during periods when business is good. In
tough economic times, however, it is easy to fall into arrears and end up facing a

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lawsuit, legal fees, and liability, not only for the delinquent contributions, but also
for liquidated damages, interest, and the plan's fees and costs.

UNDERFUNDED PLANS
Even if the small employer has steady union work and keeps current with its
contribution obligations, the current underfunded status of the plans may burden
the small employer. This may be especially true now, after an earlier period of
bullish stock market investments, reduction of employer contribution rates, and
the recent downturn in investment earnings or losses. If contribution rates fail to
keep up with increases in benefit liabilities, the small employer may keep its
contributions current and still find itself burdened with increasing contribution
rates to cure the plans' underfunded status. The newly participating employer
thus may be burdened by increasing contribution rates intended to cure the
underfunding incurred by the participating and larger employers who had failed to
keep the plan adequately funded.
This problem has been aggravated by the Pension Protection Act of 2006, which
imposed more rigorous requirements that defined benefit plans, including
multiemployer plans, take corrective action to restore the plan to adequate
funding. The trustees of the plan may be required to impose on the employers
either an increased contribution rate or a reduction in benefit options or both.
Small employers will have little voice or leverage in any of these decisions.
Unfortunately, the recent downturn in the stock market has pushed many formerly
adequately funded plans into critical status and the necessity of imposing such
corrective measures.

WITHDRAWAL LIABILITY!
The defined benefit plan may present another unanticipated disadvantage
withdrawal liability. A sponsoring employer that partially or fully withdraws from a
multiemployer defined benefit plan may be hit with an accelerated obligation to
fully fund the benefits accrued under the plan by its employees, resulting in a
much larger than normal contribution to the plan for a period of years after
withdrawing from the plan.
Future benefits under a multiemployer defined benefit plan are not fully funded as
they accrue but are funded by future contributions and trust fund earnings. If the
benefits accrued by the employer's employees are not fully funded when a
sponsoring employer withdraws, the employer's obligation to fully fund benefits is
accelerated.
Withdrawal liability may be triggered, not only by the employer's decision to
withdraw from the plan or to terminate the collective bargaining agreement, but
also by events beyond the employer's control: a vote by employees to leave the
union, a decline of business and lay-off of union employees, closure of the
business, a sale of the business, or a merger. Any total cessation of the obligation

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to contribute will result in an assessment of withdrawal liability. Thus, any

merger, acquisition, or sale of a business must be carefully structured to avoid
incurring withdrawal liability. Partial withdrawal liability will also be assessed
whenever the employer's level of annual contributions substantially declines. Thus,
any plan to avoid withdrawal liability by gradually reducing the contribution
obligation over a series of years must be carefully managed to avoid triggering
partial withdrawal liability.

WHAT TO DO?
The small employer should be cautious about signing a multiemployer collective
bargaining agreement. The employer should carefully examine the current
funding status of the multiemployer plans, the economic prospects for itself and
the other participating employers, and whether the gains from participation
outweigh the risks and loss of control of benefits and funding that will follow. If the
employer finds itself stuck in a cluster of multiemployer plans from which it would
like to withdraw, it should consult legal counsel to weigh the options for doing so.

Editor's Note: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the
web site. Because the laws and the government's rules are changing all the time, you should check with us if you are unsure whether this
material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call
us at (916) 357-5660 or email us at contactus@seethebenefits.com.

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